1. Field of the Invention
The present invention relates to demand models, and more particularly, to software that incorporates psychological factors into consumer demand models.
2. Description of Related Art
Present pricing methods, while taking into account a tremendous amount of information, ultimately depend upon a pricing analyst's expert intuition for setting prices. This reliance on a human entails a slow and qualitative pricing process. Even if this intuition could be captured by an expert system, it would still lack the quantitative description necessary to actually optimize prices. Businesses are being faced with an increasingly competitive and sophisticated environment, leading to lower margins and a stronger focus on pricing. The need for more rigorous, model-based approaches to pricing is becoming more urgent.
There are, however, problems with the use of model-based decision-making tools. As the decision-making process is automated, the operational decisions that are recommended by the model may deviate from the decisions of experienced pricing managers. One reason is that pricing managers usually consider the psychological effects that their decisions will have on consumers. For example, pricing managers know that a buyer's perception of a price is very important, and they intuitively incorporate this knowledge into their pricing. For example, there will be far more items in a retail store priced at $1.99, than priced at $2.00. This phenomenon is often referred to as a price threshold.
Another factor that impacts heavily on a buyer's psychological view of the marketplace is promotional activity. Vast amounts of money are spent on a whole range of promotions, from coupons to advertisements to commercials. The effect of promotions on the sales of an item has been studied extensively, but these promotional decisions are rarely addressed within the broader context of the whole value chain.